Reindustrializing America: A Proposal for Reviving U.S. Manufacturing and Creating Millions of Good Jobs

Retrofitting buildings with solar panels is just one renewable energy project that's ripe for public investment.

The U.S. economy faces enormous questions and challenges in attempting to recover from the collapse of 2008-2009. Some of the most pressing questions are short-term and cyclical: When will unemployment start falling? When will banks start lending at reasonable levels for productive purposes? At what level will the housing market stabilize and foreclosures fall off? Can an overall economic upswing be sustained?

But equally daunting are a series of longer-term, structural challenges: Can we establish a growth engine driven by something other than financial bubbles? Can we renew the automobile industry and, more generally, reestablish a healthy manufacturing sector? Can we accomplish these various tasks while also rebuilding the economy on a new foundation of clean energy as opposed to fossil fuel energy sources? Are all of these projects also compatible with expanding decent job opportunities throughout the U.S. economy? Addressing these longer-term challenges is the overarching theme on which we focus in this paper.

We begin by examining these questions within the general context of debates around public investment and industrial policy. This includes a brief review of the longstanding question as to whether public investments in the traditional areas of transportation, energy, and water management divert scarce resources that would otherwise be available to private investors, or whether these public investments create a nurturing environment that encourages more spending by private investors. We conclude from our review of this evidence that a large-scale commitment to public investment projects that are well-designed and implemented does indeed provide a crucial foundation supporting the healthy long-term growth of private investment, in addition to much higher levels of public safety and amenities.

We also review similar issues regarding industrial policies—that is, policies to promote research and development (R&D), moving technical innovations from R&D investments into commercial use, and raising productivity and competitiveness by getting businesses to adopt these innovations as rapidly as possible. Opponents of industrial policies in the U.S. context have long argued that government policymakers are singularly incapable of "picking winners" in the areas of technological innovations that will become commercially successful. But the historical record tells us that the U.S. government—and particularly the Pentagon—has been instrumental in developing all the most important commercially successful technologies of the last century, including jet aviation, the computer, the Internet, and bioengineering.

The other factor we consider with respect to public investments and industrial policy—both in traditional areas of transportation, energy, and water management as well as new clean energy areas—is the impact of these investments on employment. In fact, investing money in anything will create at least some jobs. But as we show, spending on traditional infrastructure and clean energy development is a powerful source of job creation in the U.S. relative to major alternative spending targets, including the military and fossil fuel industries.

We then lay out a more specific plan to support the revival of the manufacturing sector, including the U.S. auto industry. We sketch a program to increase, by 50 percent over the next five years, the number of public transportation buses on the streets of our communities. This project would have four major benefits. It would make public ground transportation a much more practical day-to-day commuting option, especially for lower-income people for whom auto transportation costs currently place a major burden on their family budgets. It would also make a major contribution toward reducing the consumption of fossil fuels in the U.S. and the emissions of greenhouse gases into the atmosphere. The government procurement orders for this dramatically expanded supply of buses have the potential to also boost orders for the U.S. auto industry by about 5 percent above the most recent peak sales level of 2007, assuming at least some auto manufacturers see the opportunity to convert a portion of...